Diary Of An Entrepreneur: Tim Hunt

 

What I learned Raising Capital

 

I was fortunate enough to have a good reputation with a few friends. I had an idea, wrote a business plan, showed it to them and they gave me $250,000. I built my first software and sold it to the market. I wanted to grow the business and hire more help so I branched out beyond my friends. The world changed.

Without those personal relationships, I was playing with a whole new set of rules. I spent five years trying to raise that next round of capital. I often tell my friends that they paid for my education as an entrepreneur. Here are a few things that $250,000 education taught me.

 

Know Your Potential Investors

Relationships still count. With angel investors, you should try to get to know them before you ask them for money. They have people asking them for money regularly and their first instinctive response is always, "No." So don't ask them for money. Ask them for advice. They are often the best resource to a growing entrepreneur. If the relationship prospers and they like you and what you are doing, they will invest.

With institutional investors, do your due diligence on them first. Make sure your idea is in line with their portfolio. Call up the CEOs of their portfolio and learn what it is like to work with the venture fund. Get to know people who know them and get a warm introduction. You have to spend at least 20 percent of your time networking and only 80 percent of your time working. Anything less and you will go forward alone and without money.

 

Pitch Well

Be quick. Be concise and let them fill in the blanks. Assume you are talking to the most intelligent people in the world and you only have to tell them part of the story and they will connect the dots. They actually like connecting the dots. Lead them to conclusions. Don't give them your conclusions. Stick to the facts and ignore the hyperbole. Of course, that assumes that you have facts. Don't try to pitch your assumptions. Discern between what you know and what you assume. Try to pitch only what you know. Make it clear when you are presenting assumptions. It lends to your credibility. Your goal of the pitch is to get them to do due diligence, not make a decision to invest. Take it one step at a time.

 

Learn To Accept, "No" Gracefully

You will be told, "No" quite often. Some will give you a reason. Some won't. When they give you a reason, thank them for their time. Never try to come back with a rebuttal to their reason for not investing. Sometimes the reason isn't even valid. Typically they have to make a snap judgment to pursue due diligence or not. If they knew what you know they might think differently, but they don't. If you accept "no" gracefully, you leave the door open for future investing in other rounds or through syndicated deals if the right people eventually do the due diligence.

 

Never Give Up

If the business behind your idea is solid, 1,000 investors telling you they're not interested won't change that fact. After five years, I was able to raise my VC/angel round and we have done well.

 

Tim Hunt is the founder and CEO of Lingotek (http://www.lingotek.com), a software developer of a new technology called the Language Search Engine. Lingotek closed a $1.7 million funding round in 2006.